Setting out on your own: business writer Adam Bernstein looks at the legal requirements you must fulfil when starting-up.
Create the identity
You need to decide which type of business vehicle to create--the most likely are as a sole trader, partnership or limited company.
Sole trader (or self-employment) is the simplest, in which you work on your own account, either under your own name or a different trading name. You are entitled to all profits but are personally liable for all debts. Costs are low as formation is free and accounts do not have to be audited or filed at Companies House. You draw money from the business as required, and pay tax on the net annual profit.
A partnership consists of two or more people (or entities) carrying on the same business together. You are each dealt with separately for most tax purposes but are all jointly and severally liable for partnership debts. Partnerships have a formal structure in a written partnership deed and can be limited (in liability for debts). Partnerships need registration with HM Revenue & Customs.
Limited companies are registered under the Companies Acts. The liability of its members is normally limited to the amount of shares that they have bought. But limited companies have costs attached to them with accounts, registration and so on. Companies are taxed on their profits, and their members--you--and employees are taxed separately on remuneration and dividends received from the company. Companies need to register with Companies House.
You may have the entity' for the business, but you need to have in mind the legal and regulatory elements of trading. You must tell HMRC that you are trading so that they can deal with your tax, national insurance and PAYE position. You also need to register for VAT.
With regard to VAT, there are numerous schemes that HMRC offer to make life easier. These include a flat rate scheme where you only pay VAT on a flat percentage of your turnover (but you can't reclaim VAT on your purchases); retail schemes that allow VAT to be claimed on purchases linked to making VATable supplies while only accounting for VAT on sales on the basis of cash received; and cash accounting which means that you only pay (or reclaim) VAT on monies actually paid rather than due--great for cashflow and instant relief on VAT should you get a bad debt.
Several accountancy organisations exist to protect the public as well as regulate the accountancy profession. The main two are the Institute of Chartered Accountants in England and Wales (ICAEW), and the Association of Chartered Certified Accountants (ACCA). For Scotland and Ireland, there are two separate but associated bodies to the ICAEW--the Institute of Chartered Accountants of Scotland (ICAS), and the Institute of Chartered Accountants of Ireland (ICAI).
The members of the organisations have undergone training and examinations to join. They are professionally qualified and each organisation has its own method of supervising members and complaints handling, should you ever have a problem. For members of the ICAEW, look for the letters ACA or FCA after their name; for the ACCA, ACCA; for the ICAI, ACA or FCA; and for the ICAS, CA.
The process for choosing a lawyer is similar to that for an accountant. Your best bet to find a good lawyer is to consult one of the two 'professional bibles'--The Legal500 and Chambers and Partners Directory. Both are useful as they are a review of lawyers for clients. They both list firms by region, specialities, together with firms' own editorial about themselves. Also listed is a rundown or experience, fees as well as partners' names and firms' addresses. But if you prefer, you could try contacting The Law Society for names of firms with known expertise in given areas.
Finance your future
To open a bank account you will need various forms of documentation including several forms of identity (for you) and for the company or partnership if appropriate.
Despite what you may have heard, you don't have to pay (high or any) bank charges. For example, both the Royal Bank of Scotland (Business Banking Direct) and NatWest (Advantage Business Account) offer some virtually free business bank accounts. You can find plenty of bank comparisons at http://bba.moneyfacts.co.uk/.
You may be able to find grants to Start, fund or grow the business. A great source is the Government's Business Link website--there's a section on finance, dealing with the banks as well as grant and loan finder, Business Link also offers advice on buying into a franchise, see pages 14/15 of this guide for its top tips put together for OT.
One benefit of being in business is that whilst employees have tax and national insurance taken from their pay automatically at source, it's different for the self-employed and businesses. Taxes, national insurance and VAT are paid in arrears. So take all of the VAT and a fixed proportion of the net and put it into higher rate interest savings accounts so that money can work for you. It also means that you'll have on one side all of the money you need to pay your taxes to HMRC as they fall due.
Seek financial advice
Being employed brings plenty of benefits including a company pension, healthcare and death in service benefit. But now that you are on your own you'll have to fend for yourself. You need at the minimum critical illness cover (pays out a lump sum on anyone of a set of illnesses or diseases), income protection insurance (pays a monthly allowance based on your income where you cannot work because of illness or disablement), life insurance (pays your estate if you die) and if in business (partnership or company) with someone else, keyman insurance (pays a sum sufficient to allow you to buy out your partners share of the business should they die).
You can find an independent financial advisor at www.unbiased.co.uk/find-an-ifa.
For more information on how to get your business up and running utilise the many resources at:
HMRC: www.hmrc.gov.uk Companies House: www.companieshouse.gov.uk Accountants: Professional bodies at www.icaew.co.uk; www.acca global. com; www.icas.org.uk; www.charteredaceountants.ie Lawyers: www.lawsociety.org. uk; www.legal500.com; www.chambersandpartners.com Business Link: www.businesslinkgov.uk
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|Title Annotation:||FRANCHISE SUPPLEMENT: STARTING OUT|
|Date:||Sep 2, 2011|
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